Question

In: Finance

What is the future value of $2,200 per year for 29 years at an interest rate...

What is the future value of $2,200 per year for 29 years at an interest rate of 6.39 percent?

Solutions

Expert Solution

Assuming that the $2200 is invested at the end of each year, we will calculate the future value by future value of ordinary annuity formula as given below:

Future value of ordinary annuity = P * ((1 + r)n - 1 / r)

where, P = Annual payments = $2200, r = rate of interest = 6.39% and n = 29

Now, putting these values in the above formula,, we get,

Future value = $2200 * ((1 + 6.39%)29 - 1 / 6.39%)

Future value = $2200 * ((1 + 0.0639)29 - 1 / 0.0639)

Future value = $2200 * ((1.0639)29 - 1 / 0.0639)

Future value = $2200 * (6.0273090132 - 1 / 0.0639)

Future value = $2200 * (5.0273090132 / 0.0639)

Future value = $2200 * (78.6746324445)

Future value = $173084.19

Now, assuming that the $2200 is invested at the beginning of each year, we will calculate the future value by future value of annuity due formula as given below:

Future value of annuity due = (1 + r ) * P * ((1 + r)n - 1 / r)

where, P = Annual payments = $2200, r = rate of interest = 6.39% and n = 29

Now, putting these values in the above formula,, we get,

Future value = (1+6.39%) * $2200 * ((1 + 6.39%)29 - 1 / 6.39%)

Future value = (1 + 0.0639) * $2200 * ((1 + 0.0639)29 - 1 / 0.0639)

Future value = (1.0639) * $2200 * ((1.0639)29 - 1 / 0.0639)

Future value = (1.0639) * $2200 * (6.0273090132 - 1 / 0.0639)

Future value = (1.0639) * $2200 * (5.0273090132 / 0.0639)

Future value = (1.0639) * $2200 * (78.6746324445)

Future value = $184144.27


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